This binary options’ indicator is also called the Envelope lines. The Envelope binary options’ indicator is based on the moving average. The indicator’s work is based on the idea that the price levels oscillate in the bounds of an equilibrium value and deviate from it only for the short period of time. This Envelope indicator is graphically represented as two moving averages (they can be simple, exponential, or weighted). At the same time, both these lines are displaced in relation to a chart up and down with the certain coefficient. In a number of cases, this indicator can include the centre line based on which the deviation coefficient is calculated.
It has been mentioned above that the range of the moving averages is calculated using the special coefficient that may appear to be the certain percentage calculated from the basic amount, for example, 3%. But it is necessary to remember that you have to be careful when using this indicator because a price displaces from the balance point by virtue of volatility, which can change depending up the considered time scale and a trading tool. In order to get the full analysis according to the binary options’ indicator, some traders use displacement which is multiple to the middle range trading. As for its calculation, it has to be carried out with the same period of averaging, which is the same for the basic moving average. The Bollinger Bands is an alternative variant for usage of this binary options’ indicator.
The deviation parameters have to be selected in a way to contain the majority of candles or bars within a chart, between the bounds of upper and lower moving averages. Therefore, this range will display an equilibrium condition of the markets in the most accurate way. If the binary options traders use this indicator to trade with the short expiration time, the range’s bounds may be used as the support and resistance levels. In this case, you can buy the Call options, when a price rebounds from the lower moving average, and buy the Put option, when a price rebounds from the upper moving average and moves downwards.
Those who trade with the middle and long expiration time are recommended to use the Envelope binary options’ indicator as the trend one. And the breakout of the moving average by a price can serve as the first signal to buy a binary option. If a price breaks the upper line of the moving average, it is recommended to buy the Call option. If a price breaks the lower line, it is recommended to buy the Put option.
It is necessary to note that the usage of this tactic in the mid-term and the long-term perspective is very profitable because the Envelope indicator will send a lesser amount of the false signals. But you have to take into account that a price has moved within the range between two moving averages (within the envelope), and if a trader buys options only when the breakout of the support or resistance levels (bounds of the range) occurs, he will lose a part of a profit, which he could have earned in the case of initial trading according to the trend. The Envelope binary options’ indicator can be also used in combination with other auxiliary tools in order to receive more accurate signals.